From the archive. First published on 30 March 2022 on weprivate.com.au. It reflects markets, rules and our views at that time and has not been updated. Super rules have changed since. The temporary minimum drawdown reduction ended on 30 June 2023 and the Superannuation Guarantee is now 12%.

This summary covers the economic view of the 2022-23 federal budget and the key changes for investors and super fund members.

With a federal election close, the government’s central messages were cost-of-living relief, more support to put home ownership within reach, and keeping Australians safe through further spending on defence, the pandemic response and cyber security.

As expected, there were no significant super measures beyond extending the temporary reduction in minimum pension drawdowns. Previously legislated changes, lifting the Superannuation Guarantee to 10.5% and removing the $450 monthly income threshold, start on 1 July 2022.

Economic update: budget repair in sight

This budget marks the start of the second phase of the government’s fiscal strategy, with an eye on budget repair. Deficits are expected through the forecast period to 2026, but shrinking. Net debt is expected to peak at 33% of GDP in 2025, still well below international peers.

The economy has been running ahead of expectations, leaving a smaller deficit than forecast and room for household relief. Alongside the temporary cut to fuel excise, there is another step up in infrastructure spending and more support for first home buyers. The Low and Middle Income Tax Offset has been extended and increased, with people earning under $126,000 receiving up to $1,500 (previously $1,080).

We think the economy is in a decent place, with reopening momentum. The fuel excise cut will offset some pressure from the war in Ukraine, while Australia’s trade position benefits as a major exporter of wheat and gas. The budget’s forecasts are optimistic, with real GDP growth of 3.5% in 2022-23, well above the RBA’s. Forecasts for iron ore and coal prices remain conservative, which could again deliver a better-than-expected fiscal result.

The RBA and central banks

We think the Reserve Bank will be slower to raise rates than other major central banks, particularly the US Federal Reserve, which would leave monetary policy more supportive of growth. What matters for the RBA is less the size of the deficit than the fiscal thrust, the change in the budget position from last year. With the deficit close to 3% of GDP, much like last year, the fiscal thrust is close to zero, which reduces the risk of the RBA moving faster.

A tightening labour market

The budget’s labour market forecasts are similar to the RBA’s, with unemployment expected to dip below 4% and wages growth contained below 3.5%. That is consistent with our view that wages will be slow to respond to a tight labour market.

What it means for portfolios

Fiscal settings play a small role relative to the economy’s overall momentum. Support for household incomes should help consumer discretionary stocks, and more infrastructure spending adds to construction earnings. Housing measures will be offset by rising interest rates, so the effect on mortgage demand and bank earnings is mixed.

We don’t think the budget changes the RBA’s path. We expect a couple of rate rises this year, but fewer than markets are pricing. With little fiscal thrust, the budget is unlikely to move the Australian dollar, although we still see some upside given negative positioning, high commodity prices and accelerating growth.

Super update: minimum pension drawdowns

The government will extend the 50% temporary reduction in minimum pension drawdowns for another year, to 30 June 2023. The minimum drawdown is the percentage of an account-based pension a retiree must withdraw each year. The reduction was introduced in March 2020 as part of the pandemic response, so retirees didn’t have to sell assets while markets were down.

The extra flexibility will be welcome, but it sits oddly with the Retirement Income Covenant, which from 1 July 2022 requires super fund trustees to have a strategy to help members maximise retirement income. Treasury’s concern is that retirees are not drawing down enough of their super, often leaving large balances in their estates.

General information only. It does not take into account your objectives, financial situation or needs. Past performance is not a reliable indicator of future performance.